Fed says US economy has slowed, takes no new steps

Specialist Michael Urizzo watches a screen at his post on the floor of the New York Stock Exchange as the decision of the Federal Reserve is announced, Wednesday, Aug. 1, 2012. The Federal Reserve said Wednesday that the economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn't show sustained improvement. (AP Photo/Richard Drew)
— AP

Specialist Michael Urizzo watches a screen at his post on the floor of the New York Stock Exchange as the decision of the Federal Reserve is announced, Wednesday, Aug. 1, 2012. The Federal Reserve said Wednesday that the economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn't show sustained improvement. (AP Photo/Richard Drew)
/ AP

Trader Frederick Reimer, right, works on the floor of the New York Stock Exchange Wednesday, Aug. 1, 2012. The Federal Reserve said Wednesday that the economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn't show sustained improvement. (AP Photo/Richard Drew)— AP

Trader Frederick Reimer, right, works on the floor of the New York Stock Exchange Wednesday, Aug. 1, 2012. The Federal Reserve said Wednesday that the economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn't show sustained improvement. (AP Photo/Richard Drew)
/ AP

WASHINGTON 
The Federal Reserve said Wednesday that the U.S. economy is losing strength and repeated a pledge to try to boost growth if hiring remains weak.

The Fed took no new action after a two-day policy meeting. But it appeared to signal in a statement released after the meeting a growing inclination to take further steps to lift the economy out of its funk. The Fed noted that growth had slowed over the first half of the year, with job creation slackening and consumer spending tapering off.

The Fed reiterated its plan to hold its benchmark short-term interest rate at a record low near zero until at least late 2014.

Market reaction to the Fed's announcement was muted. Stocks fluctuated slightly after the statement was released and ended the day lower.

The Dow Jones industrial average fell 33 points to 12,976, and broader indexes also closed down. The yield on the 10-year Treasury note increased from 1.50 percent to 1.52 percent.

The statement was slightly different than the one issued after the Fed's last meeting, June 19 and 20.

In addition to noting that the economy had "decelerated," the Fed's policymaking committee said it would "closely monitor incoming information" and "will provide additional accommodation as needed" to stimulate the economy and job creation. In the June statement the central bank said "the economy has been expanding moderately" and that it "is prepared to take further action as appropriate."

Many economists believe the Fed could launch another program of buying government bonds and mortgage-backed securities at its September meeting if the economy doesn't show improvement. The goal of the program, known as quantitative easing, would be to drive long-term rates, which are already at record lows, even lower.

The Fed's next move could depend on whether the European Central Bank, which meets Thursday, takes any action to stimulate growth among the 17 countries that use the euro.

The next big signal on the U.S. economy's health comes Friday, when the U.S. Labor Department reports on July hiring and unemployment trends.

Economists forecast that U.S. employers added 100,000 jobs in July. That would be slightly better than the 75,000 a month average from April through June but still below the healthy 226,000 average in the first three months of the year. The unemployment rate is expected to stay at 8.2 percent.

Economists will also be watching Fed Chairman Ben Bernanke's words closely when he speaks on Aug. 31 at an annual economic conference in Jackson Hole, Wyo.

"The Fed took no action at this meeting but strongly hinted that there will be further easing action at the next meeting in September," said David Jones, chief economist at DMJ Advisors.

The statement was approved on an 11-1 vote. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented for a fifth time this year. He objected to the Fed including language in the statement about keeping short-term rates low until late 2014.

U.S. economic growth slowed to an annual rate of just 1.5 percent from April through June. That's down from a 2 percent rate in the first quarter and a 4.1 percent rate in the fourth quarter of 2011.